Washington, DC–(ENEWSPF)–August 8, 2016
By: Max Ehrenfreund
In a speech on economic policy in Detroit Monday, Donald Trump put forward a new idea for helping American families pay for child care: Allow taxpayers to deduct child-care expenses from their incomes. Under Trump’s proposal, families with children would save money when paying their taxes, and the government would essentially pay part of the cost of looking after their kids.
Experts on child care are skeptical, though. The cost of the plan for the government could be exorbitant, and it is not clear how the policy would help poor and middle-class families. More affluent families would likely save the most money under the plan.
“I’m most concerned about a single mother who doesn’t earn a lot of money and who has a couple of kids at home,” said Michael Strain, an economist at the conservative American Enterprise Institute. “The benefits of this policy will not accrue to the people who most need help.”
Trump offered few other details about his plan. In general, though, deductions such as the one proposed by Trump overwhelmingly benefit wealthy families. For example, the wealthiest fifth of households claims 73 percent of the savings from the deduction for mortgage interest and 84 percent of the savings from the charitable deduction, according to the Congressional Budget Office.
There are a few reasons that these deductions primarily benefit wealthy families. First, many working-class households do not pay any federal taxes on their income. Second, even those that do pay income taxes generally opt to take the standard deduction from their income, rather than itemizing expenses like child care. From the few words that Trump offered in his speech, it was not clear whether his plan would provide additional benefits for these households beyond the current standard deduction.
For example, just 6 percent of households with less than $20,000 in income itemized their deductions, according to theCongressional Research Service. Among those with between $20,000 and $50,000, 22 percent itemized. By contrast, 84 percent of those with between $100,000 and $200,000 itemized.
Third, the same deduction is worth more in savings to wealthier households, because those households pay taxes on their income at a greater rate.
Suppose a family paying taxes at a marginal rate of 15 percent is able to deduct $1,000 from their income. They would avoid $150 in taxes as a result. But if another family — likely wealthier — is paying taxes at a marginal rate of 35 percent, the same deduction would be worth $350 to them. That is one reason that wealthier households are more likely to itemize their expenses.
Finally, more affluent households spend more on child care anyway, so they could deduct more from their income under Trump’s plan.
A recent report from the Agriculture Department on the cost of raising children in the United States estimates that a typical single-parent household with less than $62,000 in income spends $3,600 on a child’s care and education through the age of 5.
By contrast, the typical husband and wife with more than $107,000 in annual income spend nearly $11,000 on child care, according to the report — about three times as much.
In his speech, Trump implied that there might be a limit on the amount that families could deduct for child care, and that families that spend more than average would not be able to deduct all of their expenses.
“My plan will also help reduce the cost of child care by allowing parents to fully deduct the average cost of child-care spending from their taxes,” Trump said.
It’s not yet clear how Trump would calculate average child-care expenses. Since Trump still has not specified exactly what kinds of child-care expenses would be eligible for deduction, it is impossible to know exactly how different families would fare.
It is also impossible to know what the total costs to the federal government would be. Trump said that additional details on his plan would be forthcoming.
In any case, Strain expects the total to be large, and given that the government would be giving up so much tax revenue primarily to benefit affluent families, he argues the proposal is misguided.
Since Trump has promised to broadly reduce other taxes as well, the deduction would presumably force the government to borrow more money, increasing the national debt.
“Combined with Mr. Trump’s tax plan, his child-care plan just makes his overall fiscal policy that much more irresponsible,” Strain said.
This article appeared in the Washington Post at: washingtonpost.com/news/wonk/wp/2016/08/08/the-problem-with-donald-trumps-plan-for-child-care/
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